2025 Weekly Update

Market update

The S&P 500 closed the week at 6,279.35, +1.720% higher. The Dow Jones closed at 44,828.53, +2.30%, with the Nasdaq higher by +1.62%. The volatility index VIX closed the week at 17.48, down from 16.32. The Euro Stoxx 600 fell -0.46%. 

The 10-year UST closed at 4.35%, up from 4.28% a week before. The yield curve is inverted with the yield spread between the 3-month and 10-year UST at -2bps. US Corporate Bond spreads: Investment Grade spreads narrowed -7bps at 84bps and High Yield spreads narrowed -12bps at 337bps. German 10-year Bunds yield closed at 2.61% up from 2.59% a week before. In Europe, Corporate Investment Grade spreads narrowed -7bps at 97bps and High Yield narrowed -11bps at 326bps.

The US Dollar Index (DXY) depreciated -0.23% last week and closed at 97.18. The Euro closed at 1.1778 (+0.51%); the Yen appreciated +0.12%, closing at 144.47 and the Swiss Franc appreciated +0.63%, closing at 0.794. Gold closed at $3,337.15, appreciating +1.92%. Oil was higher, Brent closed at $68.3 (+0.78%) and WTI at $67 (+2.26%).

Macroeconomy

Sintra Forum

The ECB Forum on Central Banking took place in Sintra (Portugal) last week. The general message remains that everybody is in “a good place”. Of course, central banks also remain ready to adjust their strategy in an ever-uncertain  world facing more frequent supply shocks and geopolitical risks. There was no real discussion about central bank’s upcoming decisions outside the policy panel. Fed Char Powell sounded somewhat more dovish but that was before the release of the June jobs report. He said the Fed expects tariffs to gradually show up in the inflation data. Among European policymakers, the overall mood was one of cautious optimism vis-à-vis recent policy initiatives. For the ECB the bar for a July cut looks equally high, with no fresh signal on that front. Their update strategy review was published just before the Forum started, and it largely reiterated the existing principles including the symmetric inflation target. Importantly though, the ECB did keep the reference to “forceful or persistent monetary policy action” that is required in case of “large, sustained deviations of inflation from the target” but with symmetry (“in either direction”) and not only at the lower bound like four years ago. Regarding the currency, ECB vice-president Luis de Guindos seemingly put a line in the sand in terms of EUR appreciation, saying that if the single currency appreciated above 1.20 against the dollar, it could complicate the ECB’s job. While this may sound like the first sign of official verbal intervention, it wasn’t echoed by his colleagues on the Governing Council. Most members stressed that part of the appreciation was driven by prospects of stronger growth in the euro area, on top of deeper concerns over the USD status as a safe haven and reserve currency.

US jobs

The US economy added 147k jobs in June according to the Establishment Survey, above the estimate of 106k and higher than the “whisper” forecast of ~75k (the +147k is right in line with the ~146k average monthly gain from the last 12 months). Gains were strong in healthcare and local government while private sector employment climbed 74k (manufacturing employment dropped 7k). Revisions were modestly positive, with May and Apr. up a combined 16k. According to the Household survey, the number of employed people rose 93k m-o-m while the civilian labor force fell 130k. The unemployment rate fell to 4.1%, down from 4.2% in May and below the consensus forecast of 4.3%. The unemployment rate was driven lower by both the numerator (+93k in Household Survey employment) and denominator (the workforce shrank, and the participation rate dipped). The participation rate ticked lower to 62.3%, down 10bps from May and below the Street’s 62.4% forecast (this is the lowest participation rate since late 2022). Hourly wage growth was muted at +0.2% m-o-m (vs. consensus at +0.3%) and +3.7% y-o-y (vs. the +3.8% expectations and down from +3.8% in May). Average weekly compensation rose just 3.4% y-o-y, about 30bps less than the growth in hourly wages (the discrepancy was driven by the smaller workweek). The workweek shortened a bit to 34.2 hours, down from 34.3 in May and below the 34.3 forecast. The weekly jobless claims were mixed, with initials stayed relatively muted (at 233k, down from 237k in the prior week) while continuing held at an elevated level (1.964M, flat w-o-w). The discrepancy between the two figures suggests companies aren’t aggressively cutting workers, but the pace of hiring has slowed considerably.

US OBBBA

The One Big Beautiful Bill Act (OBBBA) was signed on Friday by President Trump after being passed on Tuesday by the Senate (51-50) and Thursday by the House of Representatives (218-214). In a nutshell, the bill front-loads stimulus, implies higher deficits, and raises the debt ceiling. The OBBBA is designed to deliver a front-loaded fiscal stimulus, with incentives primarily focused in the short term (reducing taxes on tips, senior citizens and overtime wages take effect immediately). Meanwhile, cuts to Medicaid and nutrition assistance are delayed. Personal income tax cuts and the exemption of tips and overtime from taxation are likely to boost personal incomes in the first half of 2026. Furthermore, measures such as accelerated depreciation for equipment, research and development are expected to serve as tailwinds for real GDP growth. Based on the CBO scoring, the bill is expected to add $3.4trn to the primary deficit over the next decade, up from $2.4trn in the House version. The deficit impact will the largest in the first four years of the 10-year window. Tariffs are expected to bring in $2.8trn in revenue in the coming decade and the latest tariff data show that June tariffs, if annualized, are close to this estimate. The debt limit will be raised by $5trn, going up to $41.1trn. So, the limit likely won’t be binding until at least the midterms next year.

Tariffs

Wednesday July 9th will mark the deadline to implement the tariffs announced back in April. President Trump said that by the deadline, tariffs would be "fully covered and they’ll range in value from maybe 60 or 70% tariffs to 10 and 20%." Then over the weekend he said that he'd “signed some letters and they’ll go out on Monday – probably 12”. The letters could apply from August 1st if no deal can be made. Treasury Secretary Bessent has also reiterated over the weekend that some countries would be able to negotiate a three-week extension to August 1st. For Europe, Bloomberg reported that the union is willing to accept a 10% universal tariff if exemptions for areas such as autos (25%) and steel and aluminum (50%) are provided. For Japan, the mood turned negative last week as President Trump said that they should "pay 30%, 35%, or whatever the number is that we determine, because we also have a very big trade deficit with Japan." On the bright side, Bessent said they were "very close" to a deal with India, and on Thursday the US reached a trade deal with Vietnam. Then President Trump posted on social media that "Any Country aligning themselves with the Anti-American policies of BRICS, will be charged an ADDITIONAL 10% Tariff,” This follows a BRICs summit in Rio over the weekend where the group condemned US and Israeli strikes on Iran.

EU data

The final Euro Area composite PMI for June was at 50.6 (vs. flash 50.2), and the UK composite also came in at 52.0 (vs. flash 50.7). The flash Euro Area CPI print came in at +2.0% y-o-y in June, exactly in line with the ECB’s target. Core was a little bit higher, at +2.3%, but that was also as expected. So, that added to the sense that the ECB would still have the space to cut rates again this year. In Germany, the EU-harmonized reading unexpectedly fell to +2.0% (vs. +2.2% expected), whilst the Italian reading remained at +1.7% (vs. +1.8% expected).

Swiss data

Switzerland's CPI surprised on the upside in June. Headline inflation rose to 0.1% y-o-y, while core inflation increased to 0.6%. This rise was mainly due to fluctuations in the hospitality industry. In other data, the PMI and the KOF releases indicate mixed signals while conditions are still challenging for industries. The manufacturing PMI rose to 49.6 from 42.1, surpassing expectations of 44. It is now at levels last seen early this year, prior to Trump’s tariff announcement, but remains in contraction territory. The KOF decreased by 2.5 points to 96.1, marking its lowest level of the year. Following CPI data and the last SNB meeting the likelihood of a rate cut in September has decreased significantly. Market participants’ terminal rate pricing for the SNB rose to -0.19%.

Japan data

Real wages in Japan have decreased for the fifth consecutive month, falling by -2.9% in May compared to a year earlier (versus an expected -1.7%), following a revised -2.0% decline in April, marking the steepest drop in 20 months. Nominal wages increased by +1.0% y-o-y in May (expected +2.4%, prior +2.0%), representing the slowest growth rate since March 2024. The Japanese yen (-0.38%) is falling, trading at 144.85 against the dollar, reversing gains from the previous session as disappointing wage data has tempered expectations for additional rate hikes by the BOJ. Japan's industrial output fell significantly short of expectations, with a mere +0.5% m-o-m increase compared to the expected +3.4% growth. Although production saw improvements in critical sectors such as machinery and automobiles, five categories, led by non-auto transport equipment, experienced declines. Confidence among major Japanese manufacturers has improved over the three months leading to June, as companies continue to uphold their optimistic long-term investment plans, even in the face of trade uncertainty. The headline index reflecting the business confidence of large manufacturers stood at +13 in June, an increase from +12 in March, and exceeding market expectations of a +10 reading. Additional details reveal that the large manufacturing outlook for the second quarter was recorded at 12.0, consistent with the previous figure of 12.0, and stronger than the anticipated 9.0.

China data

Chinese services sector expanded less than anticipated in June, as weak domestic and overseas demand significantly impacted new business activity. The Caixin services PMI fell to a 9-month low of 50.6 in June, below the expected 50.9 and down from the 51.1 recorded the previous month. The manufacturing sector has returned to growth in June after a brief contraction in May, although overseas demand continues to decline amid ongoing external uncertainties. The Caixin manufacturing PMI increased to 50.4 in June, surpassing expectations of 49.3 and showing a significant rise from the 48.3 recorded the previous month. This data follows a recent government PMI report indicating that Chinese manufacturing activity contracted for the third consecutive month in June.

Highlights

On rates

In the US, Treasuries sold off on the back of strong economic data which lifted investors’ terminal rate pricing for the Fed to 3.23%. The 10-year yield ended the week at 4.34%, +6.9bps higher. The move higher was also supported by the passage of the tax bill in Congress. With the increase in the debt ceiling, the issuance of T-bills will be ramped up in the coming months. To fund the planned increase in the deficit, the auction sizes of T-bills and short-term notes are likely to surge at the next Quarterly Refunding Statement on July 30, as a steep yield curve makes long-term bonds a more expensive source of funding. In Europe, 10-year bund yields rose +1.7 bps, with OATs (+1.6 bps) following a similar path, while BTPs (-2.6 bps) ended the week tighter. Finally, yields on 10-year UK gilt saw their biggest daily jump (+15.8 bps) since Liberation Day, amid growing fears that Chancellor of the Exchequer Rachel Reeves could lose her post after a major loss in the government's welfare bill. The gilt market rout subsequently calmed down as Prime Minister Keir Starmer promised that his government would adhere to strict budget rules. He also endorsed Reeves, stating that she is an excellent Chancellor who will remain in the position for a long time. 10-year gilt yields ended the week only +5.5bps, reversing earlier losses.

Earnings

For Q2 2025, earnings of the S&P 500 are expected to grow 5.0% y-o-y, down from 13.3% in Q1 2025. This would also be the lowest earnings growth since Q4 2023. The 5-year average is 10.7% and the 10-year average is 9.2%. From the eleven sectors of the S&P 500, six are expected to deliver positive EPS growth with Communication Services (29.5%) and Technology (16.6%) being the standouts. Energy is expected to be the biggest laggard with EPS down -25.6% y-o-y. Overall revenues are estimated to grow 4.2% y-o-y, down slightly from the 4.9% in Q1.

What to watch

• Monday: Eurozone Retail Sales; Germany Industrial Production
• Tuesday: Australia RBA Cash Rate Decision; Taiwan Exports; US NFIB Small Business Optimism, NY 1-YR Inflation Expectations
• Wednesday: RBNZ Cash Rate Decision; China's CPI, PPI and New Loans; Singapore Q2 GDP; US FOMC Minutes, MBA Mortgage Applications; Tariffs Announcements
• Thursday: Japan PPI; Korea BOK Base Rate Decision; US Initial Jobless Claims
• Friday: Korea July Exports; UK Monthly GDP; Canada June Employment Data